The day has finally arrived. It's time for Robinhood.

With an IPO around the corner, The Generalist pulled together one of our finest ever teams to cover the controversial brokerage firm. This briefing is the result of a collaboration between ten contributors:

• ​Howard Lindzon, co-founder of StockTwits and Social Leverage
• ​Julie VerHage-Greenberg, co- founder of Fintech Today.
• ​Jake Gibson, co-founder of Nerd Wallet and BTV
• ​Megan Kelly, investor at First Round Capital
• ​George Pearkes, macro strategist at Bespoke Investment Group
• ​Louis d'Origny, founding partner at Arceau Capital
• ​Meera Clark, principal at Obvious Ventures
• ​Michael Sidgmore, founding partner at Broadhaven Ventures
• ​Yoni Rechtman, principal at Tusk Ventures
• ​Sid Jha, consultant at Mastercard
• Me 👋

As always, the goal is to bring different perspectives and expertise around the table. I really hope you enjoy our work!

This report is presented in collaboration with Masterworks…

Art is an under-appreciated asset class. Indeed, 84% of ultra-high-net-worth individuals invest in art and other collectives, per a 2019 Deloitte survey. That makes financial sense — contemporary art outperformed the S&P 500 by 174% from 1995 through 2020. Wild.

Unless you had a cool $10 million lying around to buy a Picasso, though, retail investors have been locked out of this asset class — until Masterworks came along. Founded in 2017, the company allows investors to buy fractional shares of masterpieces by geniuses like Basquiat and Banksy. After sending today's piece, I plan to buy a few shares myself. I have my eye on a Rothko. If you'd like to join me, Generalist readers can skip the waitlist via this private link.*

*See important disclaimer​

One way to look at S-1 filings is as an invitation to a party.

The company is the eager host, keen to entice you, the investor, to join them. They will explain that they are extremely fun people who have long histories of throwing the biggest ragers with the prettiest people and that frankly, you are late, very late for this one, this party, which may be the best ever.

These are the contours of the argument, but each party differs in appeal and aesthetics. Unity’s S-1 is an invitation to candy flip in Joshua Tree, spending the weekend staring into the metaverse. Roblox’s is a summons to the birthday party of a precocious, terrifying thirteen-year-old. Bumble is a Paint N’ Sip for young female executives. Palantir’s is a LARP of the First Crusade — take up arms, repel the infidels!

Each has its own merits and is internally consistent. Its appeal depends on who you are and what you care about — these filings have a vibe, and if you share it, then perhaps you will come along.

Robinhood does not know what party they are throwing.

Read part of the S-1 and you might expect a symposium on the democratization of finance held in a hedge funder’s brownstone. Read another and you’d imagine a Davey Day Trader fan meeting, spilled pitchers lacquering the tables of a local watering hole. (Alight on a third and you’d anticipate a nerdy sleepover, all esoteric comic books, and wonkish, penetrating conversation.)

Depending on where you look, Robinhood is animated by contrasting energies, trying to convince you of the intelligence and nobility of its endeavor at the same time that it assures you of its playfulness.

This is clear even within the first few pages. One spread proclaims “Our mission is to democratize finance for all”; the next alludes to the Game Stop fiasco’s chief protagonist with a cheeky “ROAR” ticker. A similar juxtaposition plays out a moment later: right before Robinhood’s founders extoll their values — clear-minded and sober as they are — they wink again at Roaring Kitty with this paraphrase: “If you like these values, you may like the stock."

This is amusing, certainly. But it leaves the impression of a business unsure of whether it wants to be the most serious fun company or the most fun serious company. Does Robinhood want to be the Allegiance of Magicians from Arrested Development or Mean Girls’ “cool Mom”? Is this an addictive social app with an economic agenda, or a bank with a sense of humor?

The heart of this conflict seems to be that Robinhood isn’t quite sure what power source it’s appealing to. It seeks the affection of the YOLO’ing retail trader while it looks to garner the trust of the large financial institutions from which it makes its money.

This separation of users and revenue is not unique, of course, but Robinhood’s position is made fraught by the cultural battle in which financial markets are embroiled. The company not only has to appeal to two customer bases, it has to appeal to two customer bases that hate each other. The fact that the GameStop “degenerate” despises short-sellers like Melvin Capital, while such moneyed institutions condescend to the common man makes Robinhood’s “servant of two masters” gambit even trickier.

That the business finds itself in this position is, oddly, a symbol of its strength. No other company has played as significant a role in making investing a cultural phenomenon as Robinhood, and if it is pulled by competing forces, that is only because it is at the heart of profound shifts. This, along with the genuinely jaw-dropping numbers will be enough to persuade many.

Robinhood may not understand what party it’s throwing. Like the high-schooler organizing their first rager, the company seems keen to boost its attendance by saying one thing to the jocks, another to the emos, a third to the hipsters. That lack of definition may give pause, and yet, there’s no doubt Robinhood’s invitation has that ineffable quality of the best of bacchanals: you simply know you won’t want to miss it.

In today’s briefing, we’ll unpack:

1. The GameStop meltdown
2. Vlad and Baiju's management style
3. The controversy around PFOF
4. Real and perceived regulatory risks
5. Justifying a $40 billion valuation

With an expected soon, it's a good time to dig into the business.

PUZZLER

All guesses are very welcome, and clues available to those that would like them.

Lisa O was first to solve the pharmaceutical Puzzler posed last time around. She was joined by Alex L, Kunal G, Jithamithra T, Allan P, and Steven V. Many others provided strong guesses including Greg K, Jim W, Shuvi S, and Eric H.

It's a bit of a long answer. With that in mind, you can find the original riddle and the response here.

Wishing you all an excellent day,

Mario

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